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Assignment on Financial Viability of Wonder Kidz Franchise
Financial Management (ACCT 702) Shirley Lamarre
August 06, 2023
1
Title: Financial Viability of Wonder Kidz Franchise: A Path to Success
Introduction:
Mr. Bansal's aspiration of establishing a Wonder Kidz franchise has presented a promising entrepreneurial opportunity. As a team of financial consultants, we have meticulously evaluated the project's financial feasibility using capital budgeting techniques. Our analysis, including Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, Discounted Payback Period, and Profitability
Index (PI), aims to determine the project's viability and provide a recommendation for Mr. Bansal. Our evaluation is based on the cash flow projections provided in the case study and a discount rate of 12%, which represents the opportunity cost of capital.
Evaluation of Financial Viability:
1. Net Present Value (NPV):
The net present value (NPV) of the franchise venture is calculated to be 39,031.42
INR, which means it has a positive value. If the NPV is positive, it means that the project will bring in more money in the future than what Mr. Bansal initially invested. This is good news because it means the project will create value for him.
This indicates that the Wonder Kidz franchise has the potential to be profitable and successful. 2. Internal Rate of Return (IRR):
The project's internal rate of return (IRR) is 13.95%, which is higher than the cost of capital (12%). If the IRR (Internal Rate of Return) is higher than the required rate of return, it means that the franchise venture is expected to make a greater profit than the cost of the investment. This makes it a good opportunity to invest in. 3. Payback Period:
2
The payback period is the amount of time it takes to make enough money from a project to cover the initial investment. The payback period for the Wonder Kidz franchise is around 3.69 years. This means that Mr. Bansal can expect to get back the money he initially invested in about 3 years and 8 months. 4. Discounted Payback Period:
The discounted payback period is a way to figure out how long it will take to make
back the money you initially invested, while also considering the value of money over time. The discounted payback period for the Wonder Kidz franchise is about 4.76 years. The fact that the recovery period is a bit longer suggests that the project has a lower risk. 5. Profitability Index (PI):
The project's PI is 1.06, which is higher than 1. If the PI is greater than 1, it means that the amount of money you will receive in the future is more than the amount of money you initially invested. For the Wonder Kidz franchise, the private investigator has confirmed that the project is financially viable and has the potential to be profitable. Importance of Capital Budgeting Techniques:
Capital budgeting techniques play a crucial role in decision-making for potential investments. They enable business owners and investors to assess the economic feasibility of a project and its potential to create value.
Recommendation to the Client:
Based on our comprehensive analysis, we strongly recommend that Mr. Bansal proceeds with the Wonder Kidz franchise venture. The positive NPV, IRR higher than the opportunity cost of capital, and PI greater than 1 all indicate that the project is financially viable and holds the potential for profitability.
While the franchise venture with Wonder Kidz presents a promising opportunity, we advise Mr. Bansal to conduct thorough due diligence, review the franchise agreement carefully, and assess any potential risks before making the final 3
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decision. Furthermore, it is essential for Mr. Bansal to continuously monitor and adapt to market dynamics and evolving industry trends to ensure sustained success.
Conclusion:
In conclusion, the Wonder Kidz franchise project is financially viable, as supported
by the positive NPV, IRR, and PI. Capital budgeting techniques provide a clear understanding of the project's potential and are instrumental in guiding investment decisions. We believe that Mr. Bansal's expertise and passion for academics, combined with the project's strong financial prospects, make the Wonder Kidz franchise a promising path to success. As financial consultants, we are confident that this venture will be a fulfilling and rewarding journey for Mr. Bansal and his wife, Sharda. We wish them the best in their pursuit of entrepreneurial success with Wonder Kidz.
4
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